Effective from 1st April 2025, the Input Service Distributor mechanism became mandatory for businesses with multiple GST registrations under a single PAN. The Finance Act 2024 amended Section 20 and Section 2(61) of the CGST Act to make ISD the sole permissible route for distributing ITC on common input services across business units.
This article explains the new ISD mandate and the compliance requirements.
What Is an ISD?
An Input Service Distributor is a GST registration obtained specifically to distribute ITC on common input services to distinct persons (branches) under the same PAN.
The Mandatory Requirement
From 1st April 2025, ISD registration is mandatory for any registered person having multiple GST registrations. The ISD must:
- Receive invoices for common input services.
- Issue ISD invoices to distribute the ITC.
- File GSTR-6 monthly.
Transition from Cross-Charge
Prior to the amendment, businesses could use the cross-charge mechanism to distribute costs between branches. The amendment restricts ITC distribution to the ISD mechanism, though cross-charge may continue for non-ITC cost allocations.
Compliance Steps
- Obtain ISD registration if you have multiple GSTINs.
- Route all common input service invoices through the ISD.
- Issue ISD invoices for ITC distribution.
- File GSTR-6 by the 13th of the following month.
- Maintain records of all distributions.
Penalty for Non-Compliance
Failure to comply with the ISD mandate can result in denial of ITC and penalty under Section 122.
Conclusion
The ISD mandate is a significant compliance change for multi-location businesses. Companies must obtain ISD registration and implement the distribution mechanism by April 2025.
At Anuj Desai & Associates, we provide expert advisory services on ISD registration and compliance. Our team can help you implement the ISD mechanism.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.